Financial Services Regulation and Compliance - Banking Oct 2019
Financial Services Regulation and Compliance - Banking Oct 2019
Countercyclical capital buffer rate announcement - October 2019
The Central Bank of Ireland announced on 1 October 2019 that the countercyclical capital buffer (CCyB) rate on Irish exposures is to be maintained at 1 per cent. The CCyB is a macro-prudential policy tool which varies capital requirement in the banking sector in order to mitigate the risk of a pro-cyclical reaction of bank lending to the real economy in any future downturn or period of systemic stress.
Minister Donohoe signs Credit Institutions Resolution Fund Levy regulations into law
The Minister for Finance and Public Expenditure & Reform, Paschal Donohoe T.D. has signed into law the Credit Institutions Resolution Fund Levy Regulations. The Credit Institutions Resolution Fund (Resolution Fund) was established to support resolution actions in the State, and is managed and administered by the Central Bank. Credit unions are now the only financial institutions contributing to the Resolution Fund as other financial institutions are now covered by the Single Resolution Mechanism. It was decided that the target size of the Resolution Fund should be set at €65m and should be met by 2025. It was also agreed that the Resolution Fund should be reviewed in 2025 and that the annual levy should be approximately €5m per annum from 2020 to 2025 to increase the size of the Resolution Fund from €35m to €65m, broadly in line with the increased average asset size of credit unions.
Industry Letters issued in relation to adding legal charges to borrowers in mortgage arrears
The Central Bank of Ireland has written to all the main Irish lenders, reminding them of their obligation under the Code of Conduct on Mortgage Arrears 2013 (CCMA) not to impose charges and/or surcharge interest on arrears, or impose third party charges unless the borrower has been classed as not co-operating. Lenders have been given until 20 December 2019 to confirm they have undertaken a review to establish instances of inappropriately imposing charges and to outline how they intend to deal with the issue. For clarity, the Central Bank has reiterated that regulated entities must not apply the costs to a mortgage account until:
the Court has awarded the costs to the regulated entity
a settlement has been agreed between the parties
the borrower is in a position to redeem the mortgage and has requested to do so
Single Resolution Board launches 2020 resolution reporting data request
The Single Resolution Board (SRB) has launched the process for the 2020 data collection cycle for Resolution Reporting. The details of the scope, content and deadlines for resolution reporting to the SRB are now available on the dedicated SRB webpage. As was the case during previous collection cycles, the SRB will be collecting data from banks, via National Resolution Authorities (NRAs), for those banks under the SRB’s remit. NRAs will inform banks of their resolution reporting obligations in October 2019, once these are finalised in collaboration with the SRB. The deadline for delivery by banks to NRAs is 31 March 2020 for the Liability reports. All other resolution reports are due by banks by 30 April 2020.
EBA publishes the regular Basel III capital monitoring report and an update on the compliance of EU banks with liquidity measures
The European Banking Authority (EBA) has published two reports, which monitor the impact of implementing the final Basel III reforms and the current implementation of liquidity measures in the EU.
The EBA Basel III capital monitoring report results show that:
European banks' minimum Tier 1 capital requirement are expected to increase by 19.3% at the full implementation date (2027).
To comply with the Pillar 1 requirements in the new framework, EU banks would need €26bn of additional total capital, of which €24.9bn of Tier 1 capital.
The EBA report on liquidity measures shows that EU banks have continued to improve their compliance with the liquidity coverage ratio (LCR). However, there are potential currency mismatches in LCR levels in some foreign currencies.
European Systemic Risk Board publishes risk dashboard – Issue 29
The European Systemic Risk Board (ESRB) has published its risk dashboard. The main points were:
credit to the private sector continued to grow robustly in many EU Member States
following a period of relative easing, credit standards remained broadly unchanged over the last quarter
banking sector resilience remained broadly stable while the reduction of non-performing loans continued
The European Central Bank (ECB) has published its focus areas for supervision in 2020. The key drivers of banking sector risks identified are:
economic, political and debt sustainability challenges in the euro area
business model sustainability
cybercrime and IT deficiencies
The highlighted areas identified are continuing balance sheet repair, strengthening future resilience in relation to credit underwriting, capital liquidity management and governance and other priorities (including the implementation of contingency measures for a no-deal Brexit).
ECB: Euro area banks have overall comfortable liquidity positions, but some vulnerabilities require further attention
The European Central Bank (ECB) has published its results of the 2019 supervisory stress test. The vast majority of banks directly supervised by the ECB have overall comfortable liquidity positions despite some vulnerabilities requiring further attention. The main findings included:
banks showed adequate liquidity reserves to withstand stress
vulnerabilities in relation to foreign currencies, data quality and collateral management
EBA launches consultation on guidelines on the application of the structural FX provision
The European Banking Authority (EBA) has launched a consultation on draft guidelines on the application of the structural FX provision. Under the Capital Requirements Regulations these guidelines aim at setting a regulatory framework on structural FX to address the observed diversity in its application across the EU. In particular, the guidelines identify criteria to assist competent authorities in their assessment of the structural nature of a foreign-exchange position and whether such position has been deliberately taken for hedging the capital ratio. The consultation runs until 17 January 2020.
EBA consults on supervisory reporting changes related to CRR2 and Backstop Regulation (Framework 3.0)
The European Banking Authority (EBA) has launched a public consultation on revised implementing technical standards (ITS) on supervisory reporting and proposing changes to different areas of reporting, including own funds, credit risk, counterparty credit risk, large exposures, leverage ratio, net stable funding ratio and FINREP. The review of the reporting framework is designed to replace the Commission's Implementing Regulation (EU) No 680/2014. A parallel consultation regarding the draft ITS on public disclosures by institutions was also launched.
EBA publishes Opinion on the regulatory treatment of non-performing exposure securitisations
The European Banking Authority (EBA) has published an opinion on the regulatory treatment of securitisations of non-performing exposures (NPE) recommend various amendments to the Capital Requirements Regulation (CRR) as well as to the Securitisation Regulation to remove the identified constraints. The opinion explains that the regulatory framework imposes certain constraints on credit institutions using securitisation technology to dispose of NPE holdings, namely:
very high capital requirements on investor credit institutions under the CRR
compliance challenges as regards certain risk retention and due diligence requirements under the Securitisation Regulation
The opinion has recommended that the Commission consider a number of targeted amendments to the CRR and the Securitisation Regulation to remove constraints including 1 and 2 whilst maintaining the integrity of the prudential framework.
SRB launches public consultation on its 'Expectations for Banks'
The Single Resolution Board (SRB) has launched its first public consultation on its "Expectations for Banks" document, which outlines best practice on key aspects of resolvability. The consultation sets out the capabilities the SRB expects banks to demonstrate in order to show that they are resolvable and in order to provide clarity to the market on the actions the SRB expects banks to take. The consultation period will conclude on 4 December 2019.
Single Resolution Board Publishes 2020 Work Programme
The Single Resolution Board (SRB) has published its 2020 Work Programme, setting out its priorities and core tasks for the year ahead. A focus for the year ahead will be on ensuring that the SRB’s internal policies, resolution plans and minimum requirements for own funds and eligible liabilities (MREL) decisions reflect the requirements of the new banking package and requiring banks to be made more proactive in making themselves resolvable.
EBA report on potential impediments to the cross-border provision of banking and payment services
The European Banking Authority (EBA) has published a report on potential impediments to the cross-border provision of banking and payment services. In this report the EBA calls on the EU Commission to update interpretive communications on cross-border provision of services, further harmonise consumer protection of AML/CFT obligations to facilitate scaling up of banking and payments activities across the EU.
EBA publishes opinion proposing to further strengthen depositor protection in the EU
The European Banking Authority (EBA) has published its second opinion addressed to the EU Commission on the implementation of the Deposit Guarantee Schemes Directive (DGSD) in the EU. The opinion focuses on the payouts by deposit guarantee schemes (DGSs) and proposes a number of changes to the EU legal framework, aimed at strengthening depositor protection, improving depositor information, enhancing financial stability and reinforcing operational effectiveness of DGSs. The proposals include changes in relation to cases where depositors have lost access to their funds but payouts have not started, and cases of money laundering and terrorism financing (ML/TF) concerns, the treatment of beneficiary accounts and banks headquartered in another EU Member State.